One of the most common questions we receive as advisor lending experts at Advisor Financing is “what does an average deal look like?” While this seems like it should be an easy question to answer, the reality is that there is no average deal because every advisor loan scenario we have encountered has unique characteristics. One of the resources we have provided gives a high level overview of the types of financing available: which includes acquisition financing, partner buy-outs, breakaway advisor loans, refinances, and working capital. To dive further in to the types of financing available, let’s take a look at some example scenarios. Note: these are not actual loans that have been provided, however, are meant to give an idea as to sample types of advisor loan scenarios we have encountered.
Sample Loan Scenario #1: Financial Advisor Partner Buy-Out
Highlights:
· Two 40-year-old junior partners purchasing a senior partner’s practice. Senior partner to remain as a consultant for 18 months in decreasing capacity
· Senior partner: 100% owner of their practice with $90,000,000 in AUM and trailing 12 month GDC of $950,000. 95% advisory income.
· Junior Partner 1: $20,000,000 in AUM and trailing 12 month GDC of $150,000. 95% advisory income.
· Junior Partner 2: $6,000,000 in AUM and trailing 12 month GDC of $60,000. 80% advisory income.
Deal Characteristics:
· $2,200,000 purchase price
· 100% financing provided
· 10 year amortization, 7 year fixed interest rate term
· Collateral: 1st lien position on firm, assignment of life insurance in amount of the loan
Sample Loan Scenario #2: RIA Acquisition
Highlights:
· External acquisition of firm – the sellers of RIA retiring and selling to another RIA within the local community due to community relationships and proximity to clients. Selling IARs to remain as consultants for six month period. Revenue claw-back provision after 12 months noted in the purchase agreement.
· Selling RIA: $160,000,000 in AUM and trailing 12 month revenue of $1,000,000. 98% advisory income.
· Acquiring RIA: $300,000,000 in AUM and trailing 12 month revenue of $2,500,000. 100% advisory income.
Deal Characteristics:
· $2,900,000 purchase price
· 100% financing provided
· 10 year amortization, 7 year fixed interest rate term
· Collateral: 1st lien position on firm, assignment of life insurance in amount of the loan
Sample Loan Scenario #3: Independent Financial Advisor Partner Buy-In
Highlights:
· Junior partner buying 50% of senior partner’s practice as part of 5 year succession plan
· Senior partner 100% owner. $140,000,000 in AUM and trailing 12 month GDC of $1,200,000. 98% advisory income.
· Junior partner: Has worked with selling advisor for 7 years and is buying equity now to begin executing succession plan. Will purchase remaining 50% of practice at that point in time based upon valuation conducted and 10% reduction to purchase price due to sweat equity.
Deal Characteristics:
· $1,000,000 purchase price
· 100% financing provided
· 10 year amortization, 10 year fixed interest rate term
· Collateral: 1st lien position on firm, assignment of life insurance in amount of the loan, personal guarantee from selling advisor
Sample Loan Scenario #4: Refinance + Acquisition + Working Capital
Highlights:
· Independent advisor with a national broker-dealer had previously acquired a retiring advisor’s practice 3 years ago and has 7 years remaining on loan term with a $500,000 current loan balance. Currently acquiring a second advisor’s practice upon retirement for $1,000,000.
· Selling advisor: $50,000,000 in AUM and trailing 12 month GDC of $450,000. 70% advisory income. Will not be remaining in an advisory or consultant capacity.
· Acquiring advisor: $150,000,000 in AUM and trailing 12 month GDC of $1,200,000. 98% advisory income.
· $100,000 in working capital desired to hire a junior advisor to assist in transitioning clients as well as specified marketing efforts
Deal Characteristics:
· $1,600,000 term loan used to refinance existing loan, acquire additional practice, and provide $100,000 in working capital
· 10 year amortization, 7 year fixed interest rate term
· Collateral: 1st lien position on firm, assignment of life insurance in amount of the loan
